Cover Story: Widespread support for Development Bank

by Patrick J. Byrne

News Weekly, November 17, 2001

During the election campaign widespread support emerged for the call by former ANZ Chief, Will Bailey, for the major parties to support a public inquiry into the effects of bank deregulation after 16 years, and into the feasibility of establishing a new government-backed development bank.

Despite political pundits saying the issue would get buried in the election campaign, it persisted and ran in the mainstream media for almost three weeks. This is despite much of the electorate being disengaged from the elections, while the emotionally charged issues of Tampa and the war on terrorism muddied the political waters.

The issue drew sympathy and support from journalists and editors on some metropolitan newspapers and found strong support from rural and regional media, local councils, small business groups and some industry lobby groups.

At the time of News Weekly going to press (Wednesday, November 7), only the Democrats, who have held the balance of power in the Senate, were committed to supporting an inquiry. The Sydney Morning Herald Editorial (October 30) said that the proposal "warrants a considerable debate".

Labor leader Kim Beazley painted the issue as a call for a poor man’s bank that would give the major banks "the excuse they need to walk away from all their social responsibilities" to pensioners, social security recipients and low income earners. Instead, Labor pushed the concept of a Bank Charter for the commercial banks.

Ironically, his letter appeared in the Age newspaper (November 7) on the opposite page to a feature article by Will Bailey pointing out that his proposal was for anything but a poor man’s bank.

Mr Bailey said that "... specialist financial institutions have disappeared. In particular, institutions which provided longer term, low interest loans, have closed or been absorbed into other organisations.

"In other countries specialist institutions owned by the community exist to support the development of the country through assisting small and medium sized businesses.

"The support for small and medium-sized business is seen as a national priority as these enterprises are the drivers of job creation and wealth creation. There is plenty of evidence around the world to demonstrate the need for, and success of, such institutions.

"Contrary to much political rhetoric these institutions are not a cost to the community. They run at modest profits."

He said these institutions do not compete with the commercial banks, but "complement other players in the market as they provide services others don’t want to offer."

Mr Bailey said earlier that Labor’s proposed "Bank Charter" and more bank regulation "cannot make the banks provide the services that a development bank could provide."

Meanwhile, the response from Liberal campaign rooms and candidates criticised the proposal because it would involve handing out "taxpayer funded ... subsidised loans" to certain sections of the community.

Yet the Liberals were promoting their $70 million expenditure on Rural Transaction Centres. These Centres are much-needed in many in rural and regional areas, but ironically, they are also examples of the government handing out "taxpayer" subsidies to local communities which have lost the banking facilities that commercial banks are no longer willing to provide.

Both Liberal and Labor skirted the issue, declaring support for more community banks like the Bendigo Bank. While such banks provide important services, they do not have the capital base to be a development bank.

Mr Bailey’s proposal gained support from one of Australia’s leading historians and economists, Emeritus Professor Hugh Stretton, who said that while "the dogmatic theorists of deregulation will say it won’t work, ...over much of the north-west of Europe similar institutions have long worked well" (Australian Financial Review, November 6).

Writing in the Canberra Times (November 6), Emeritus Professor Ted Kolsen, from the University of Queensland, said: "If our leaders are going to ‘build the nation,’ then they are going to have to look in new policy directions that ‘build our regions and industries’".

He pointed out that the former Commonwealth Development Bank had shown that this concept can work, helping to establish 400,000 small businesses in its 30-year history, adding: "The major party that supports a new bank, or an inquiry into its feasibility, is likely to win critical support in marginal electorates because they cover those regions most affected by the negative impact of bank deregulation.

"Of equal importance," he said, "is the political signal such a policy would send to the electorate; that the next government would be going forward with new policies, different from the old economic agenda that has run its course over the past 20 years."

If none of the major parties commits to an inquiry in the latter days of the campaign, then it will be up to the Democrats, and possibly other Independents, to drive the issue forward in the parliament.

In the wider community, there is little doubt that this has become an issue that is not going to go away.